What funny times in which we live; an observation perhaps highly dependent upon your notion of fun. Maybe curious is the better description. Daunting? Frightening? Opaque and unknowable? All probably good descriptions. True of politics. True of business.
Sticking to business, it’s hard to get conviction around anything right now. Nonetheless, we must. Everyone needs
It’s Golden Turkey Awards Time, Folks!
Our Turkeys are a little late this year but hey, we’ve been busy worrying about the collapse of the world’s economy. This is the 10th edition of our Turkeys and much thanks to our disorderly, often dysfunctional, regularly inscrutable and absurd government, polity and marketplace for continuing to
I wrote a week or two back about my expectation that significant economic dislocation awaits us. I still think that. The morning after I published, hordes (ok, maybe not hordes) of PhD Villeins were outside my house with pitchforks and burning torches, loudly asserting that I had wildly overstated the likelihood of material distress in the marketplace. “No, no, no, the White House has assured us of a soft landing and a soft landing we’ll have.” (The Council of Economic Advisers, not surprisingly, if professionally embarrassing, seem to think so, too.) And, while inflation is bad, it’s not that bad. (I don’t yet need a wheel barrel to buy bread!) No recession, they perorate loudly and insistently. We’ll be back to 2% inflation, sub 4% unemployment and 2% GNP growth by Q4 of 2023!
Continue Reading Life (and Opportunity) in the Time of Considerable Government Malfeasance
Welcome, dear reader, to our annual Golden Turkey Awards. But for my commitment to absolute fairness and concern over the appearance of impropriety, I would have awarded the first Golden Turkey Award to Dechert for actually getting the Golden Turkey Awards done this year. What a crazy year end. The market is insane.
On the other hand, while time is short, there’s plenty to bloviate about. I remember last year we were absolutely ready for the end of the Trump administration because the Biden administration promised a “dull is cool” vibe. Well, dull has been a failure. The farrago of lingering Covid, a return to something which is clearly not normalcy, but something new and with a pond full of black swans flopping around, it is not dull. So, how’s that working out for you? The follies of 2021 at least make writing this column easier. So, we went digging for inanity for the purpose of making gentle fun of things that broadly annoy us and, shockingly, we found things to talk about. So, here we are once again.Continue Reading 2021 Golden Turkeys
Since nothing is happening in the news right now, we thought we would put out a second post on LIBOR this week. As you may know, Dechert has a LIBOR podcast which you can find on our YouTube page. In the latest episode, David Bowman, Senior Associate Director from the Board of Governors of
Regulators have been increasing their scrutiny of LIBOR transition efforts as they ramp up messaging stressing that the time to act is now. The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a National Exam Program Risk Alert to introduce a LIBOR Examination Initiative on the upcoming discontinuation of, and transition
Here is something helpful that has surfaced amidst the fallout, pain and confusion of the global COVID-19 crisis. The implementation date for the all-too-simple in theory but not-simple-at-all in practice CECL accounting standard has been pushed back by the passage of the CARES Act for banks until the COVID-19 national emergency declared by the president ends or December 31, 2020, whichever is earlier. In addition, an interim final rule released by the FRB, OCC and FDIC on Friday, March 27th, now provides an option to delay the effects of CECL on regulatory capital for two years (in addition to the original three-year transition period for banks required to adopt CECL during their 2020 fiscal year). Banks opting to use both forms of relief would be subject to a modified transition period which would be reduced by the amount of quarters CECL was delayed due to the CARES Act. No relief was provided for non-banks who are otherwise required to follow CECL.
Continue Reading CECL: The Ugly Pig Running Out of Lipstick
The Federal Reserve, OCC and FDIC have (finally) issued the Final HVCRE Rule (for background, our analysis of the 2018 Notice of Proposed Rulemaking and 2019 Notice of Proposed Rulemaking are here and here), regarding High Volatility Commercial Real Estate (HVCRE) regulations that affect acquisition, development or construction (ADC) loans made by banking organizations that are subject to the capital rule, including bank holding companies, savings and loan holding companies and U.S. intermediate holding companies of foreign banking organizations. The Final HVCRE rule becomes effective April 1, 2020. Here are the Top 10 takeaways from the Final HVCRE Rule:
Continue Reading Top 10 Things to Know About the Final HVCRE Rule
Just when you thought the regulators had forgotten about HVCRE ADC, they issued a new notice of proposed rulemaking like they were Beyoncé surprise-dropping a new album. And then…they disappeared again! We were waiting for more news before alerting our readers but nothing has come to date. To bring those not in the HVCRE ADC-hive up to speed, the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) reformed the capital rule for acquisition, development and construction loans (HVCRE ADC exposures or loans) back in May 2018, but the regulations have yet to be conformed to the statutory regime.
Under the current statutory framework, an HVCRE ADC loan is a credit facility secured by land or improved real property which (A) primarily finances, has financed, or refinances the acquisition, development, or construction of real property; (B) has the purpose of providing financing to acquire, develop, or improve such real property into income-producing real property; and (C) is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility. Among other exceptions, the current statutory regime includes an exemption for loans that finance the acquisition, development, or construction of one- to four-family residential properties (the paragraph 2(i)(A) exemption).
On July 12, 2019, the Federal Reserve, FDIC and OCC released a Notice of Proposed Rulemaking (2019 NPR), in response to comments submitted to their September 2018 Notice of Proposed Rulemaking (2018 NPR). The 2018 NPR was meant to conform the regulatory capital rule to the updates brought about in EGRRCPA and the 2019 NPR supplements the previous proposal to narrow the paragraph 2(i)(A) exemption.
Continue Reading HVCRE ADC Update: Regulators Propose Eliminating Exemption for Land Development Loans
The US economy is about to pay the butcher’s bill for a massive disruption of worldwide financial markets resulting from the elimination of the London Interbank Offered Rate, or LIBOR. And, we are doing this on purpose. It seems the denizens of the heights of our international financial fabric felt they had to do this in light of the discovery that a handful of bankers had unlawfully colluded to cause LIBOR to be mispriced for their personal advantage. As Captain Renault said, “I’m shocked, shocked!” This was so bad that we had to blow up the LIBOR index upon which trillions of dollars of financial assets are based? While bankers behaving badly is a problem, why are we punishing markets because our banking regulatory cadres failed to prevent bad behavior? At best, this is a monument to irrational rectitude.
Continue Reading Killing LIBOR: A Victory for Irrational Rectitude